The American academia has started to investigate the corporate governance issue since 1930s. After Asian financial crisis, Asian governments have also been asking enterprises to put more weight on the issue of corporate governance. Thus, corporate governance has become a popular topic and has drawn public’s attention in both business administration and academia. The board of directors is an indispensable mechanism for corporate governance. The board supervises the corporate management and its operation on behalf of all shareholders and asks the management to maximize the firm’s profit. Furthermore, the capability of the board of directors in control of the management has the inseparable connection with the constitution of board of directors.

Among previous studies regarding the issue of board of directors, the majority of researchers focused their studies on the board’s operations from firm’s perspective. However, the relationship between board effectiveness and investor’s behavior is relatively unexplored. In order to fill this gap, this study is trying to examine (i) whether the investment behavior of the investors will be influenced by the effectiveness of the board of directors, and (ii) whether the relationship between effectiveness of the board and investment behavior will be moderated by the type of investors.

This study employs experimental design along with survey questionnaires. Our study samples consist of professional and non-professional investors. Mutual fund managers are chosen to represent the professional investors and EMBA students are proxies of non-professional investors.

The content of the questionnaire includes two fictitious companies. One has strong-form of corporate governance and the other does not. It explores the relationship between investors’ perceptions of board effectiveness and their judgments on these two companies’ investment risk, investment holding period, and investment amount. Our empirical results are summarized below:

1.Apparently, investors' perceptions of board effectiveness significantly influence their evaluation of investment risk, investment amount, and holding period. When investors perceive strong-form of the effectiveness of the board, the investors tend to believe that the investment risk of the company is lower; they would like to invest larger amount of money and to hold the investment longer.

2.Investors’perceptions of board effectiveness and the amount of assets they are willing to invest changes according to different types of the investor. The amount of money that professional investors are willing to invest is larger than non-professional investors.

3.However, the relationship between the investors’ perceptions of board effectiveness and their judgments of investment risk and investment holding period would not be changed as to different investor types.

Sharma, S. D. (2006) “Effects of Professional and Non-Professional Investors’ Perceptions of Board Effectiveness on Their Judgments: An Experimental Study”, Journal of Accounting and Public Policy, 25, 91–115.